Air New Zealand Seeking Further Cost-Cutting

Air New Zealand is vowing to continue to clamp down on costs despite its strong financial performance, and that includes ongoing scrutiny of its heavy maintenance operations.

At its annual stockholder’s meeting late last week, Air New Zealand CEO Christopher Luxon emphasized that the airline is undertaking benchmark studies to compare its costs in all segments of the business against its competitors. The carrier will “identify the cause of high costs,” and will only retain the expense if passengers are prepared to pay for them through ticket prices.

This process has already begun, and has led to “tough conversations” with parties such as labor groups and suppliers, said Luxon.

However, Luxon emphasized that Air New Zealand will continue to invest in its cabin product.

Air New Zealand also has some major fleet investment approaching—NZ$1.8 billion ($1.5 billion) over the next three years—and Luxon assured shareholders that it is “well within our capacity to digest” that level of fleet spending.

The carrier boosted its profit to NZ$182 million for its fiscal year through June 30, its strongest result in five years.

Air New Zealand is also engaged in discussions with its unions about the future of heavy maintenance at its Auckland base. Luxon points out that with Boeing787s and 777s replacing its aging fleet of Boeing 747s and 767s, maintenance demands will be reduced. From 2016, when the carrier’s new fleet mix emerges, there will be no widebody heavy maintenance at all in some periods, Luxon says. The carrier has raised the prospect of 180 job cuts, and a decision is expected this month following the conclusion of union talks.

When questioned about Air New Zealand’s substantial investment in alliance partner Virgin Australia, Luxon reiterated that the Australian airline’s results were “disappointing.” However, he stresses that Air New Zealand views that investment as a long-term commitment, as do fellow major shareholders Etihad Airways and Singapore Airlines. Air New Zealand has a 23% stake in Virgin Australia, and intends to increase this to 26%.

Luxon says it is a positive for Virgin Australia that it has “three well-resourced [airline] shareholders,” who will “continue to support and buttress it as needed.” In August, Virgin Australia revealed that these major airline stakeholders have committed to provide it with an A$90 million ($83.9 million) term loan facility.

Having the government of New Zealand as majority owner has given Air New Zealand a “stable ownership” platform to execute its turnaround, says the carrier’s Chairman John Palmer. The airline has contributed over NZ$500 million in dividends to the government since it bailed out Air New Zealand in 2001. The government has indicated that it intends to reduce its stake in the airline, but it remains unclear when this will occur.